PD Model

The probability of default (PD) model provides the Point In Time (PIT) PD term structure.

The probability of default (PD) model provides the PD term structure based on multi-state Markov (MSM) transformation. Through the cycle (TTC) PD is the output of MSM transformation. The Vasicek model is used to convert TTC PD to point-in-time (PIT) PD.  In the Vasicek single-factor model, PDs are estimated based on a single common factor, typically a macroeconomic variable. PD model provides PD term structure based on macroeconomic scenarios.

Business Benefit:

This feature calculates the PD term structure, which is used as input for the ECL calculation.

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